Introduction
The Capital Asset Pricing Model gives you a single number: the return an investor should expect from an asset, given how much systematic risk that asset carries. Portfolio managers use it to set hurdle rates. Equity analysts run it to check whether a stock is earning its cost of equity. Students encounter it in every finance course because it’s the baseline against which other pricing models get measured. You’ll need three inputs to make it work: a risk-free rate (the 10-year Treasury yield is the standard), a beta that describes the asset’s sensitivity to market moves, and an expected return for the broad market. The CAPM calculator below handles the arithmetic, the interpretation, and the alpha check in one pass.
How to Use This CAPM Calculator
Pick your currency from the dropdown. It affects the copy and citation output, not the math.
Enter the risk-free rate as an annual percentage. A 10-year government bond yield is the conventional choice.
Type in the asset’s beta. Leave it at 1.2 if you’re just exploring, or look up the actual figure for your ticker.
Set the expected market return. Something in the 7–10% range reflects long-term equity averages in most developed markets.
Optionally, add the asset’s actual or realized return to trigger the alpha calculation.
Name the asset and pick a class if you want the share and citation text to use the real ticker instead of “your asset.”
Read the expected return at the top, then scroll down for the SML table, the breakdown, and the beta sensitivity grid.
How the CAPM Calculator Formula Works
Expected return equals the risk-free rate plus beta times the market risk premium.
Formula: E(Ri) = Rf + β × (Rm − Rf)
In plain terms: every asset earns at least the risk-free rate. On top of that, it earns compensation for the market risk it carries. That compensation is the equity risk premium (Rm − Rf) scaled by beta. A beta of 1.0 means the asset moves with the market, so it earns the full ERP. A beta of 0.5 earns half. A beta of 2.0 earns double. If you enter an actual return, the tool also computes Jensen’s alpha as actual return minus expected return. A positive alpha means the asset beat its CAPM benchmark. Negative means it lagged. The tool clamps inputs to sensible ranges risk-free rate between -10% and 50%, beta between -5 and 10, market return between -10% and 50%, actual return between -100% and 200% so you won’t get a result from a typo that’s off by a factor of ten.
Worked Example
Suppose you’re analyzing a semiconductor stock. You pull the 10-year Treasury yield and get 4.5%. The stock’s five-year beta against the S&P 500 comes out to 1.65. Long-run market return estimates sit around 9.5%. The equity risk premium is 9.5 − 4.5 = 5.0%. Beta times ERP is 1.65 × 5.0 = 8.25%. Add the risk-free rate: 4.5 + 8.25 = 12.75%. That’s the CAPM expected return.
Now suppose the stock actually returned 15.2% over the past year. Jensen’s alpha is 15.2 − 12.75 = +2.45%. The stock outperformed its risk-adjusted benchmark by just under two and a half points. Whether that alpha persists is a separate question, one year of data won’t settle it but the calculator gives you the number the model produces.
Frequently Asked Questions
What is the CAPM formula?
E(Ri) = Rf + β × (Rm − Rf). The expected return equals the risk-free rate plus beta times the market risk premium. Plug in your three inputs and you have the answer. The calculator does the same arithmetic but also shows the intermediate values.
How do I calculate expected return using CAPM?
Subtract the risk-free rate from the expected market return to get the equity risk premium. Multiply by beta. Add the risk-free rate back. That’s the expected return. With Rf = 4.5%, β = 1.2, and Rm = 9.5%, you get 4.5 + 1.2 × 5.0 = 10.5%.
What is a good beta for a stock?
It depends on your risk tolerance. Defensive stocks often sit between 0.5 and 0.9. Broad-market index funds cluster around 1.0. Growth stocks and small caps frequently run between 1.2 and 2.0. There’s no single “good” number — beta describes risk, it doesn’t judge it.
What does a negative alpha mean?
A negative alpha means the asset returned less than CAPM predicted for its beta. If the model said 11% and the stock delivered 8%, alpha is −3%. That’s underperformance on a risk-adjusted basis. One year of negative alpha isn’t conclusive, but a consistent pattern suggests the asset isn’t earning its risk premium.
How do you calculate Jensen’s alpha?
Alpha = Actual Return − CAPM Expected Return. The calculator computes CAPM expected return first, then subtracts it from whatever actual return you enter. Leave the actual return field blank or at zero and the alpha stays hidden. Enter a real figure and it appears in the results tiles and the breakdown table.
What is the equity risk premium right now?
There’s no live feed in this tool, so the ERP depends entirely on the market return you type in. If you set Rm at 9.5% and Rf at 4.5%, the ERP is 5.0%. Historical U.S. equity risk premiums have averaged between 4% and 6% over long periods, but the current implied premium moves with prices and rates.
Is CAPM still used in 2026?
Yes. It remains the default cost-of-equity model in corporate finance, equity research, and regulatory rate-setting. Academics have documented its limitations, beta instability, the size and value anomalies but no single replacement has displaced it. Most practitioners use CAPM as a baseline and adjust from there.
Can I use CAPM for a private company?
You can, but you’ll need to estimate beta from comparable public companies. Pick three to five listed firms in the same industry, average their betas, and unlever then relever them for the private company’s capital structure. The calculator accepts any beta value you supply, so it works with an estimated figure just as well as a published one.
What does a beta of 0 mean?
A beta of zero means the asset’s returns have no correlation with the market. Treasury bills approximate this. In the CAPM formula, a beta of zero collapses the expected return to the risk-free rate. The asset earns nothing extra because it carries no systematic risk.
How accurate is CAPM?
CAPM is a model, not a prediction. It tells you what return should compensate for a given level of market risk under a set of assumptions. Real returns deviate, sometimes for years. The model’s value is in providing a consistent, transparent framework for comparing assets. Treat the output as a benchmark, not a guarantee.
Why does my expected return change when I only change beta?
Because beta is the multiplier on the equity risk premium. If the ERP is 5% and you move beta from 1.0 to 1.5, the beta-adjusted premium jumps from 5% to 7.5%. The risk-free rate stays fixed, so the entire change flows through to the expected return. That sensitivity is exactly what the beta grid at the bottom of the results shows.
What happens if the market return is lower than the risk-free rate?
You get a negative equity risk premium. If beta is positive, the expected return falls below the risk-free rate. The calculator will show a negative or very low expected return and flag it in the interpretation table. That’s usually a sign that your market return input is too conservative or your risk-free rate is too high.
